Family money: How to protect it in the future

If you have “family money” and you want to make sure that it continues to provide for your family well into the future — even long after you’re gone — a spendthrift trust is one of the most effective vehicles possible.

Unlike a regular trust, a spendthrift trust can be used to protect family money — or any large inheritance — from your heir’s creditors or from your heirs themselves if they happen to have a bad habit that could cause dollars to run through their fingers like water.

A spendthrift trust is overseen usually by a neutral party, like a management company or a law firm. The individual or company in charge can invest the funds once the trust is made irrevocable or you die — but the beneficiary cannot touch the balance of it. He or she can only spend the distributions and only the trustee can authorize those distributions.

That’s why it’s often better to have a company oversee a spendthrift trust than a family friend — unless your family friend has nerves of steel or you’re only worried about creditors (like in the case of an heir with chronic health problems). You don’t want to burden a family friend with an heir that is good at wheedling money out of people’s hands to support his or her addiction — whether it’s shopping, drugs, gambling or simply the latest and greatest bad investment that he or she can’t be talked out of making.

Spendthrift trusts aren’t necessary for every situation — but they can be set up as easily as any other trust. They do present a little bit of a problem when it comes to choosing the trustee because you want someone who can be responsive to a problem heir’s real needs (for example, a tuition bill) but who can see through any con that your heir might be trying to pull (for example, just claiming the money is for tuition or books, when he or she has already dropped out). It also protects your heir in case he or she marries and the marriage doesn’t work out.

For more information on how to manage family money in a way that makes sense for your situation, talk to an attorney about estate planing today.

Source: The Balance, “How a Spendthrift Trust Can Protect Your Heirs from Themselves,” Joshua Kennon, accessed Aug. 18, 2017